Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Significant growth in total investment income due to a growing portfolio and capital deployment into debt instruments.
- Successful acquisition of Sci Apps, a major portfolio investment, expected to bring substantial capital infusion.
- Declared total dividends of $0.83 per share year-to-date, with a consistent quarterly dividend of $0.29 per share.
- Portfolio fair value increased to $87.1 million, up 13% from year-end 2023 and 5% sequentially.
- Strong and flexible balance sheet with total assets growing 8% to $90.8 million, positioning the company well for future investments.
Negative Points
- Total expenses for the second quarter increased to $2.7 million, up from $1.3 million in the same quarter last year.
- Net investment loss of $517,000 or $0.2 per share, compared to net investment income of $493,000 or $0.19 per share in the previous year.
- Interest expense increased due to usage of the senior revolving credit facility.
- Outstanding borrowings of $17.2 million carried a high interest rate of 18.8% at quarter end.
- The need to strategically redeploy funds from the Sci Apps acquisition to drive further value and potentially increase dividends.
Q & A Highlights
Q: Can you provide more details on the acquisition of Sci Apps by Spectris plc and its impact on Rand Capital?
A: Dan Penberthy, President & CEO: The acquisition of Sci Apps by Spectris plc is valued at up to $260 million, including a $60 million earn-out component. Rand holds approximately 6% of Sci Apps' equity, with our total investment costing $5.2 million. As of June 30th, we valued this investment at $10.8 million. We are evaluating the best options for the anticipated capital infusion, including new investments and reinvesting in existing portfolio companies.
Q: What were the key drivers behind the 18% increase in total investment income for the quarter?
A: Margaret Bretchel, CFO: The 18% increase in total investment income was driven by a 35% increase in interest income, reflecting seven new interest-yielding investments made over the past year. Overall, 22 portfolio companies contributed to our investment income.
Q: How did the portfolio mix change during the recent quarter?
A: Dan Penberthy, President & CEO: Our portfolio had a fair value of $87.1 million across 26 businesses, up 13% from year-end 2023 and 5% sequentially. The portfolio is comprised of approximately 66% debt investments with an annualized weighted average yield of 13.8%, and 32% equity investments in private companies, primarily Sci Apps and Telsim.
Q: Can you elaborate on the notable exits and repayments during the quarter?
A: Dan Penberthy, President & CEO: We received $3.3 million in total proceeds from liquidating our shareholdings in three BDC investments, resulting in realized gains of $598,000 from Carlyle, $485,000 from PennantPark, and $177,000 from Aries. Additionally, we recognized a realized gain of $397,000 from a partial asset sale of an affiliated entity called SQS and received $740,000 in principal loan repayments from our Pressure Pro debt investments.
Q: What is the current liquidity position of Rand Capital?
A: Margaret Bretchel, CFO: At quarter-end, we maintained total available liquidity of over $11 million, including our line of credit availability, cash on hand, and remaining highly liquid publicly traded BDC securities. This positions us well for future investments.
Q: How did the net asset value (NAV) change during the quarter?
A: Margaret Bretchel, CFO: Net assets at June 30th, 2024, were $68.6 million, up 11%. The change largely reflects the unrealized depreciation on investments of $7.8 million. As a result, the net asset value per share increased to $26.56 compared with $23.85 at March 31st, 2024.
Q: What are Rand Capital's future investment strategies?
A: Dan Penberthy, President & CEO: Our strategy is to expand our business by pursuing new investments and reinvesting in existing portfolio companies with high potential. We aim to participate in new smaller M&A transactions with other co-investors, supporting a robust steady income stream through new debt instruments while sharing in the EBITDA growth through equity holdings.
Q: What is the outlook for dividends?
A: Margaret Bretchel, CFO: We expect that our strategy of transforming the portfolio to include more income-generating investments will enable us to sustain a higher dividend level over time. Recently, Rand announced its regular quarterly cash dividend of $0.29 per share, to be paid on or around September 13th, 2024.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
